European Mortality

The Groupe Consultatif Actuariel Europeen published end 2005 a study, which for the first time compares how companies in different European countries measure life expectancy for their pension schemes. It reveals vast differences in mortality assumptions and indicates that practice across the EU varies widely when assessing company pension liabilities.


As you may see from some examples to the left, a wide area of classic mortality formulae in the different European countries passes by.

It's clear that that mortality assumptions in company pension schemes vary from
country to country, due to variations in underlying population mortality as well as in
variations of the profile of typical membership of a company pension scheme. However, the
variations in mortality assumptions are much greater than would be justified by these
factors alone.

Some of the variation is due to the fact that some countries incorporate an allowance
for expected future improvements in mortality, while others use tables that relate to mortality observed over a period in the past, without allowing for the fact that life expectancy continues to increase.

The total actuarial deficit with regard to (future) longevity in company pension schemes is substantial.


As a 'Survey of Actuarial Education in Europe' showed, not only mortality rates differ, but also the the education of different European actuarial professionals.

In short, work enough for actuaries.

More information:

• Mortality findings revealed
  
• Executive summary (pdf 70Kb)
• Full report (pdf 1.67MB)

Netherlands Best EU Healthcare system 2008

The Netherlands are the overall winner in the Euro Health Consumer Index 2008, launched today in Brussels at a press conference hosted by the Health Consumer Powerhouse.

The Euro Health Consumer Index is the annual ranking of national European healthcare systems across six key areas: Patient rights and information, e-Health, Waiting time for treatment, Outcomes, Range and reach of services provided and Pharmaceuticals.

The Euro Health Consumer Index 2008

• The Euro Health Consumer Index 2008 report (pdf) »
• The Euro Health Consumer Index 2008 matrix (pdf) »
• General Press Release (pdf) »
• EHCI Tables and Figures (MS Word) »
• Euro Health Consumer Index 2008 Policy Recommendations (pdf) »
• Data sheets for all 34 indicators in the EHCI 2008 »

Client Lifetime Value (CLV)

In a Harvard Business Review called "Why satisfied customers defect", Jones & Sasser explain that even a 80% 'satisfied clients score', is no guarantee for sustainable success.

Common management misconceptions are:

1. A client satisfaction level below complete or total satisfaction is adequate.
2. It's not profitable to invest in changing customers from 'satisfied' to 'completely satisfied'.

Their conclusion is that, in most cases, 'complete customer satisfaction' is key in order to secure customer loyalty and generate sustainable financial performance.

Loyalty & Satisfaction
Despite of what sometimes intuitively is assumed, the relationship between loyalty and satisfaction is in most cases not linear, but depends on the competition level of a specific market segment.

In a Dutch presentation, called "CRM Myths", direct marketing professor Janny Hoekstra confirms this relationship and shows that even 'satisfied clients' are in the so called 'indifference zone'.

The 'art of client management' is obviously to create 'Apostles' and to avoid creating 'Terrorists'.

So stimulate, instead of discourage, your clients to give you feedback and to complain, because this is the only way to create new apostles.

NPS
A relatively new and, according to Harvard (The One Number You Need to Grow), probably better method to measure client loyalty is the 'Net Promoter Score' (NPS). Simply score your clients on a 0-10 points scale on the question: "Would you recommend company X ?'

Now simply calculate the NPS score (%) as:
NPS = Promoters% (rating 9&10) - Detractors% (rating 6 or less)

NPS scores of 75% or more prove world class loyalty.

Loyalty effect
Another, intuitively driven, perception is that the more customers are loyal, the more they generate profit.

In general this seems true, however as Hoekstra shows: not every 'more loyal' client is also per definition 'more profitable'.

Just like Reinartz (Insead) stated in his article : 'Not all custumors are equal'.

Reinartz defines different client groups called: Butterflies, Strangers, True Friends and Barnacles.

Each group urges a different approach in a Customer Client Strategy.

Investing in 'True friends' appears essential and eventually pays out.



Customer Lifetime Value
Actuaries that combine marketing an actuarial sciences could help by defining and calculating what is called: The Customer Lifetime Value (CLV)

The CLV of a specific client(group) could be defined as the discounted value of the yearly margin (m = profits - costs), with discounting rate (i) and the (client) retention rate (r).

CLV:Rule of thumb
In the strongly simplified case with constant margin, the CLV - as a rule of thumb - could be defined as the margin (m) multiplied with the so called margin multiple = r/(1+i-r).

Example: Discount rate = i =12%, Retention rate = r = 90%, results in a CLV of approximately 4 times the yearly margin.

As is clear from the formula and table above, the choice and impact of the discount rate is only significant in combination with a high (>90%) retention rate.

Modeling and creating Client Value is not only in the interest of the shareholder, but moreover a case of creating creating added value for clients, in particular 'best satisfied clients'.

More info at: Modeling CLV(insurance), Customer Metrics